IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v43y2022i8p3665-3684.html

Quality incentive contract design in government procurement for innovation

Author

Listed:
  • Congli Su
  • Mingxi Wang

Abstract

Recently, as supply‐side innovation incentive policies do not work well in China, demand‐side instruments, like the government procurement for innovation, are emphasized. However, as the enterprise may be better informed than the government about its initial technology level and effort, the government faces the dual information asymmetry of adverse selection and moral hazard in the process of procurement. Thus, in this paper, series of quality incentive contract models are proposed to illustrate how the government can identify the initial technology type of the enterprise and motivate it to exert effort to improve the innovation quality.

Suggested Citation

  • Congli Su & Mingxi Wang, 2022. "Quality incentive contract design in government procurement for innovation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3665-3684, December.
    • Handle: RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3665-3684
    DOI: 10.1002/mde.3621
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.3621
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.3621?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bram Timmermans & Jon Mikel Zabala-Iturriagagoitia, 2013. "Coordinated unbundling: A way to stimulate entrepreneurship through public procurement for innovation," Science and Public Policy, Oxford University Press, vol. 40(5), pages 674-685, February.
    2. Dong Cai & Chunxiang Guo & Yue Tan, 2019. "Design of Incentive Contract for Technological Innovation of New Energy Vehicles with Asymmetric Information," IJERPH, MDPI, vol. 16(22), pages 1-14, November.
    3. Daniel Krähmer & Roland Strausz, 2011. "Optimal Procurement Contracts with Pre-Project Planning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 1015-1041.
    4. Bleda, Mercedes & Chicot, Julien, 2020. "The role of public procurement in the formation of markets for innovation," Journal of Business Research, Elsevier, vol. 107(C), pages 186-196.
    5. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1185-1209.
    6. Yuting Zhang & Lan Xu, 2021. "Quality incentive contract design in government procurement of public services under dual asymmetric information," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 34-44, January.
    7. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    8. Max Rolfstam, 2009. "Public procurement as an innovation policy tool: The role of institutions," Science and Public Policy, Oxford University Press, vol. 36(5), pages 349-360, June.
    9. Wang, Jue, 2018. "Innovation and government intervention: A comparison of Singapore and Hong Kong," Research Policy, Elsevier, vol. 47(2), pages 399-412.
    10. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85, March.
    11. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    12. Borrás, Susana & Edquist, Charles, 2013. "The choice of innovation policy instruments," Technological Forecasting and Social Change, Elsevier, vol. 80(8), pages 1513-1522.
    13. Asseyer, Andreas, 2018. "Optimal monitoring in dynamic procurement contracts," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 222-252.
    14. Kiyoon Shin & Yeongjun Yeo & Jeong-Dong Lee, 2020. "Correction to: Revitalizing the Concept of Public Procurement for Innovation (PPI) from a Systemic Perspective: Objectives, Policy Types, and Impact Mechanisms," Systemic Practice and Action Research, Springer, vol. 33(2), pages 213-214, April.
    15. Edquist, Charles & Zabala-Iturriagagoitia, Jon Mikel, 2012. "Public Procurement for Innovation as mission-oriented innovation policy," Research Policy, Elsevier, vol. 41(10), pages 1757-1769.
    16. Poblete, Joaquín & Spulber, Daniel, 2017. "Managing innovation: Optimal incentive contracts for delegated R&D with double moral hazard," European Economic Review, Elsevier, vol. 95(C), pages 38-61.
    17. Zhao, Bo, 2020. "COVID-19 pandemic, health risks, and economic consequences: Evidence from China," China Economic Review, Elsevier, vol. 64(C).
    18. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    19. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    20. Xiaoying Li & Qinghua Zhu, 2020. "Contract Design for Enhancing Green Food Material Production Effort with Asymmetric Supply Cost Information," Sustainability, MDPI, vol. 12(5), pages 1-18, March.
    21. Rajiv D. Banker & Inder Khosla & Kingshuk K. Sinha, 1998. "Quality and Competition," Management Science, INFORMS, vol. 44(9), pages 1179-1192, September.
    22. Haner, Udo-Ernst, 2002. "Innovation quality--a conceptual framework," International Journal of Production Economics, Elsevier, vol. 80(1), pages 31-37, November.
    23. J. Edler & L. Georghiou & K. Blind & E. Uyarra, 2012. "Evaluating the demand side: New challenges for evaluation," Research Evaluation, Oxford University Press, vol. 21(1), pages 33-47, February.
    24. Stanley Baiman & Paul E. Fischer & Madhav V. Rajan, 2001. "Performance Measurement and Design in Supply Chains," Management Science, INFORMS, vol. 47(1), pages 173-188, January.
    25. Guohao Wang & Liying Yu, 2020. "Analysis of Enterprise Sustainable Crowdsourcing Incentive Mechanism Based on Principal-Agent Model," Sustainability, MDPI, vol. 12(8), pages 1-21, April.
    26. EuiBeom Jeong & GeunWan Park & Seung Ho Yoo, 2019. "Incentive Mechanism for Sustainable Improvement in a Supply Chain," Sustainability, MDPI, vol. 11(13), pages 1-18, June.
    27. Tracy R. Lewis & David E.M. Sappington, 1991. "Incentives for Monitoring Quality," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 370-384, Autumn.
    28. Peng Ma & Yeming Gong & Mingzhou Jin, 2019. "Quality efforts in medical supply chains considering patient benefits," Post-Print hal-02312386, HAL.
    29. Babica Viktorija & Sceulovs Deniss, 2019. "Public Procurement of Innovation: Selection of the Sustainable Alternative," Economics and Business, Sciendo, vol. 33(1), pages 233-246, January.
    30. Mowery, David & Rosenberg, Nathan, 1993. "The influence of market demand upon innovation: A critical review of some recent empirical studies," Research Policy, Elsevier, vol. 22(2), pages 107-108, April.
    31. Ma, Peng & Gong, Yeming & Jin, Mingzhou, 2019. "Quality efforts in medical supply chains considering patient benefits," European Journal of Operational Research, Elsevier, vol. 279(3), pages 795-807.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cai, Dong & Zhang, Guoxing & Lai, Kee-hung & Guo, Chunxiang & Su, Bin, 2024. "Government incentive contract design for carbon reduction innovation considering market value under asymmetric information," Energy Policy, Elsevier, vol. 186(C).
    2. Wenqian Zhang & Haiyan Wang, 2023. "Optimal contract design for live streaming platforms under dual asymmetric information considering corporate social responsibility," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3537-3555, September.
    3. Yunjuan Liang & Xin Liang & Hua Wei, 2023. "Sustainable Quality-Incentive Contract Design of Public Technology Innovation Procurement under Asymmetry Information," Sustainability, MDPI, vol. 15(11), pages 1-22, May.
    4. Wenqin Zhong & Ligang Ren & Mengyi Wang, 2025. "Regulating unproductive contract adaptation: A payment deduction mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(4), pages 2237-2248, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yunjuan Liang & Xin Liang & Hua Wei, 2023. "Sustainable Quality-Incentive Contract Design of Public Technology Innovation Procurement under Asymmetry Information," Sustainability, MDPI, vol. 15(11), pages 1-22, May.
    2. Cao, Fuguo & Yang, Yusen & Guo, Shaobo & Appolloni, Andrea, 2025. "Towards an optimal effect of government technology innovation policy mix: the case of government procurement and research and development subsidies with evidence from China," Socio-Economic Planning Sciences, Elsevier, vol. 100(C).
    3. Obwegeser, Nikolaus & Müller, Sune Dueholm, 2018. "Innovation and public procurement: Terminology, concepts, and applications," Technovation, Elsevier, vol. 74, pages 1-17.
    4. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    5. Edler, Jakob, 2023. "Demand, public procurement and transformation," Discussion Papers "Innovation Systems and Policy Analysis" 79, Fraunhofer Institute for Systems and Innovation Research (ISI).
    6. Isabelle Brocas, 2008. "Optimal choice of characteristics for a nonexcludable good," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 283-304, March.
    7. Ovaere, Marten, 2023. "Cost-efficiency and quality regulation of energy network utilities," Energy Economics, Elsevier, vol. 120(C).
    8. Peng Hao & Jun-Peng Guo & Eoghan O’Neill & Yong-Heng Shi, 2023. "When Will First-Price Work Well? The Impact of Anti-Corruption Rules on Photovoltaic Power Generation Procurement Auctions," Sustainability, MDPI, vol. 15(4), pages 1-24, February.
    9. Charles Edquist & Nicholas S. Vonortas & Jon Mikel Zabala-Iturriagagoitia, 2015. "Introduction," Chapters, in: Charles Edquist & Nicholas S Vonortas & Jon M Zabala-Iturriagagoitia & Jakob Edler (ed.), Public Procurement for Innovation, chapter 1, pages 1-32, Edward Elgar Publishing.
    10. Albano, Gian Luigi & Cesi, Berardino & Iozzi, Alberto, 2017. "Public procurement with unverifiable quality: The case for discriminatory competitive procedures," Journal of Public Economics, Elsevier, vol. 145(C), pages 14-26.
    11. Julien Chicot & Mireille Matt, 2015. "Public procurement of innovation: A review of rationales, instruments and design," Post-Print hal-02087762, HAL.
    12. Kiyoon Shin & Yeongjun Yeo & Jeong-Dong Lee, 2020. "Correction to: Revitalizing the Concept of Public Procurement for Innovation (PPI) from a Systemic Perspective: Objectives, Policy Types, and Impact Mechanisms," Systemic Practice and Action Research, Springer, vol. 33(2), pages 213-214, April.
    13. Askfors, Ylva & Fornstedt, Helena, 2018. "The clash of managerial and professional logics in public procurement: Implications for innovation in the health-care sector," Scandinavian Journal of Management, Elsevier, vol. 34(1), pages 78-90.
    14. Dai, Xiaoyong & Li, Yanchao & Chen, Kaihua, 2021. "Direct demand-pull and indirect certification effects of public procurement for innovation," Technovation, Elsevier, vol. 101(C).
    15. Edquist, Charles & Zabala-Iturriagagoitia, Jon Mikel, 2020. "Functional procurement for innovation, welfare and the environment," Papers in Innovation Studies 2020/1, Lund University, CIRCLE - Centre for Innovation Research, revised 19 Jul 2020.
    16. Jakub Kastl & David Martimort & Salvatore Piccolo, 2008. "Delegation and R&D Spending: Evidence from Italy," CSEF Working Papers 192, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 17 Oct 2009.
    17. Raymond Deneckere & André de Palma & Luc Leruth, 2016. "Risk Sharing in an Adverse Selection Model," Working Papers hal-01393213, HAL.
    18. Paula Cayolla Trindade & Paula Antunes & Paulo Partidário, 2017. "SPP Toolbox: Supporting Sustainable Public Procurement in the Context of Socio-Technical Transitions," Sustainability, MDPI, vol. 10(1), pages 1-26, December.
    19. Fabian Herweg & Marco A. Schwarz, 2018. "Optimal Cost Overruns: Procurement Auctions With Renegotiation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1995-2021, November.
    20. Miravete, Eugenio J., 2011. "Convolution and composition of totally positive random variables in economics," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 479-490.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3665-3684. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.